[governance-vn] Scarcity in an Age of Plenty by Joseph E. Stiglitz

[Vern Weitzel]

Subject: 	Scarcity in an Age of Plenty by Joseph E. Stiglitz
Date: 	Fri, 27 Jun 2008 23:24:49 +0700
From: 	nguyen mai <henmoc at gmail.com>



   Scarcity in an Age of Plenty


     by Joseph E. Stiglitz

NEW YORK – Around the world, protests against soaring food and fuel
prices are mounting. The poor – and even the middle classes – are seeing
their incomes squeezed as the global economy enters a slowdown.
Politicians want to respond to their constituents' legitimate concerns,
but do not know what to do.

In the United States, both Hillary Clinton and John McCain took the easy
way out, and supported a suspension of the gasoline tax, at least for
the summer. Only Barack Obama stood his ground and rejected the
proposal, which would have merely increased demand for gasoline – and
thereby offset the effect of the tax cut.

But if Clinton and McCain were wrong, what should be done? One cannot
simply ignore the pleas of those who are suffering. In the US, real
middle-class incomes have not yet recovered to the levels attained
before the last recession in 1991.

When George Bush was elected, he claimed that tax cuts for the rich
would cure all the economy's ailments. The benefits of tax-cut-fueled
growth would trickle down to all – policies that have become fashionable
in Europe and elsewhere, but that have failed. Tax cuts were supposed to
stimulate savings, but household savings in the US have plummeted to
zero. They were supposed to stimulate employment, but labor force
participation is lower than in the 1990's.  What growth did occur
benefited only the few at the top.

Productivity grew, for a while, but it wasn't because of Wall Street
financial innovations. The financial products being created didn't
manage risk; they enhanced risk. They were so non-transparent and
complex that neither Wall Street nor the ratings agencies could properly
assess them. Meanwhile, the financial sector failed to create products
that would help ordinary people manage the risks they faced, including
the risks of home ownership. Millions of Americans will likely lose
their homes and, with them, their life savings.

At the core of America's success is technology, symbolized by Silicon
Valley. The irony is that the scientists making the advances that enable
technology-based growth, and the venture capital firms that finance it
were not the ones reaping the biggest rewards in the heyday of the real
estate bubble. These real investments are overshadowed by the games that
have been absorbing most participants in financial markets.

The world needs to rethink the sources of growth. If the foundations of
economic growth lie in advances in science and technology, not in
speculation in real estate or financial markets, then tax systems must
be realigned. Why should those who make their income by gambling in Wall
Street's casinos be taxed at a lower rate than those who earn their
money in other ways. Capital gains should be taxed at least at as high a
rate as ordinary income. (Such returns will, in any case, get a
substantial benefit because the tax is not imposed until the gain is
realized.) In addition, there should be a windfall profits tax on oil
and gas companies.

*Given the huge increase in inequality in most countries, higher taxes
for those who have done well – to help those who have lost ground from
globalization and technological change – are in order, and could also
ameliorate the strains imposed by soaring food and energy prices.
Countries, like the US, with food stamp programs clearly need to
increase the value of these subsidies in order to ensure that nutrition
standards do not deteriorate. Those countries without such programs
might think about instituting them.*

Two factors set off today's crisis: the Iraq war contributed to the
run-up in oil prices, including through increased instability in the
Middle East, the low cost provider of oil, while bio-fuels have meant
that food and energy markets are increasingly integrated. Although the
focus on renewable energy sources is welcome, policies that distort food
supply are not.  America's subsidies for corn-based ethanol contribute
more to the coffers of ethanol producers than they do to curtailing
global warming. Huge agriculture subsidies in the US and the European
Union have weakened agriculture in the developing world, where too
little international assistance was directed at improving agriculture
productivity. Development aid for agriculture has fallen from a high of
17% of total aid to just 3% today, with some international donors
demanding that fertilizer subsidies be eliminated, making it even more
difficult for cash-strapped farmers to compete.

Rich countries must reduce, if not eliminate, distortional agriculture
and energy policies, and help those in the poorest countries improve
their capacity to produce food. But this is just a start: we have
treated our most precious resources – clean water and air – as if they
were free. Only new patterns of consumption and production – a new
economic model – can address that most fundamental resource problem.

*/Joseph E. Stiglitz, Professor at Columbia University, received the
2001 Nobel Prize in economics. He is the co-author, with Linda Bilmes,
of /The Three Trillion Dollar War: The True Costs of the Iraq Conflict/./*

*Copyright: Project Syndicate, 2008.
www.project-syndicate.org *